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Sat Mar 17, 2012, 11:33 AM

Adam Smith’s Psychology

His “invisible hand” was only part of the story; so was morality!

The founding father of modern free market economics, Adam Smith, is best known for his famous simile in The Wealth of Nations (1776) about the “invisible hand,” which seemed to endorse a dark view of human nature. He wrote: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

However, that’s perfectly OK. “Man…is led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”
Indeed, later on in his masterwork Smith even seemed to provide a rationalization for unvarnished greed and a no-holds-barred predatory economy when he commented: “In spite of their natural selfishness and rapacity… are led by an invisible hand to…advance the interest of the society...”

Modern economists often become lyrical about “the superiority of self-interest” over altruism in economic life and the virtues of competition and the “profit motive,” while overlooking the fact that Smith’s rendering of the invisible hand was quite contingent. As he said, the invisible hand is not “always the worse” and “frequently promotes” the general welfare. But this is not a sure thing.

More important, many of Smith’s modern acolytes seem unaware of his cautionary warnings, especially in his earlier work, The Theory of Moral Sentiments, where (as a Stoic and a Christian) he stressed the fact that everything in a free market depends on a moral foundation of trust, honest dealing and, as he himself put it, “justice”. (He defined justice as not doing “injury” to others.) “There can be no proper motive for hurting our neighbor.” Smith was even a proponent of the Golden Rule and invoked the “invisible hand” simile in his earlier work to characterize our sense of charity toward those in need.

http://www.thefairsociety.net/2012/02/adam-smiths-psychology.html

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Response to Klukie (Original post)

Sat Mar 17, 2012, 12:28 PM

1. The "hand" was only "invisible" to him because he didn't have any social sciences yet

 

There's nothing whatsoever "invisible" about it now, these forces are all measured and relatively tightly controlled.

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Response to Klukie (Original post)

Sat Mar 17, 2012, 01:14 PM

2. More Adam Smith (from the wonderful Steve Kangas website 'Liberalism Resurgent')

 

http://www.huppi.com/kangaroo/Quotes-economics.htm


"Every individual… intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his original intention. By pursuing his own interest he frequently promotes that of society more effectively than when he really intends to promote it."
-- Adam Smith, Wealth Of Nations

( But here is what Adam Smith really thought: )

"All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind."
-- Adam Smith, Wealth of Nations

"No society can surely be flourishing and happy when part of the members are poor and miserable."
-- Adam Smith, Wealth Of Nations

"Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people."
-- Adam Smith, Wealth Of Nations

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."
-- Adam Smith, Wealth Of Nations

"As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce."
-- Adam Smith, Wealth Of Nations

"The liberal reward of labor, therefore, as it is the necessary effect, so it is the natural symptom of increasing national wealth. The scanty maintenance of the laboring poor, on the other hand, is the natural symptom that things are at a stand, and their starving condition that they going backwards fast."
-- Adam Smith, Wealth Of Nations

"The rate of profit... is naturally low in rich and high in poor countries, and it is always highest in the countries which are going fastest to ruin."
-- Adam Smith, Wealth Of Nations

"The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state ....(As Henry Home (Lord Kames) has written, a goal of taxation should be to) 'remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.'"
-- Adam Smith, Wealth Of Nations

"Whenever the legislature attempts to regulate differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favor of the workmen, it is always just and equitable; but it is sometimes otherwise when in favor of the masters."
-- Adam Smith, Wealth Of Nations

"The interest of dealers, however,... is a always in some respects different from, and even opposite to, that of the public... The proposal of any new law or regulation of commerce which comes frm this order ought... never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."
-- Adam Smith, Wealth Of Nations

"In a society of an hundred thousand families, there will perhaps be one hundred who don't labour at all, and who yet, either by violence, or by the more orderly oppression of law, employ a greater part of the labour of society than any other ten thousand in it. The division of what remains, too, after this enormous defalcation, is by no means made in proportion to the labour of each individual. On the contrary those who labour most get least. The opulent merchant, who spends a great part of his time in luxury and entertainments, enjoys a much greater proportion of the profits of his traffic, than all the Clerks and Accountants who do the business. These last, again, enjoying a great deal of leisure, and suffering scarce any other hardship besides the confinement of attendance, enjoy a much greater share of the produce, than three times an equal number of artizans, who, under their direction, labour much more severely and assiduously. The artizan again, tho' he works generally under cover, protected from the injuries of the weather, at his ease and assisted by the convenience of innumerable machines, enjoys a much greater share than the poor labourer who has the soil and the seasons to struggle with, and, who while he affords the materials for supplying the luxury of all the other members of the common wealth, and bears, as it were, upon his shoulders the whole fabric of human society, seems himself to be buried out of sight in the lowest foundations of the building."
-- Adam Smith, first draft of Wealth Of Nations

( And here is what Adam Smith thought about labor unions: )

"We rarely hear, it has been said, of the combinations (that is, unions or colluding organizations) of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labor above their actual price."
-- Adam Smith, Wealth Of Nations

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Response to Trajan (Reply #2)

Sun Mar 18, 2012, 01:42 AM

4. +1,000,000,000,000,000,000

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Response to Klukie (Original post)

Sat Mar 17, 2012, 02:52 PM

3. K&R This is the face of Adam Smith that conservatives don't want you to see!

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